Portugal Telecom soars on Sonae bid

Bid could be political move to avoid Telefonica offer

By

AudeLagorce

LONDON (MarketWatch) -- Shares of Portugal Telecom jumped as much as 22% on Tuesday after Portuguese conglomerate Sonae SGPS made an unsolicited bid to buy the country's largest phone company for 10.7 billion euros ($12.8 billion).

Sonae, which is controlled by Portugal's richest man, Belmiro de Avezedo, is offering 9.50 euros a share for the former state monopoly. That's a 16% premium to the stock's closing price from the previous session.

If the offer is accepted, Sonae, whose market value is only a quarter of Portugal Telecom, would become the No. 1 phone operator in Portugal, with fixed-line, wireless and Internet services.

The deal would give Sonae control of market leader mobile firm TMN, Portugal's dominant fixed-line network as well as Vivo, Portugal Telecom's joint venture with Spain's Telefonica in Brazil.

The offer was made with Sonae.com, Sonae's publicly traded telecommunications business, which in turn owns Optimus, Portugal's third-largest mobile operator with a 19% market share.

Sonae said its bid was contingent on Portugal Telecom shareholders allowing it to hold more than 10% voting rights, which currently is prohibited under company rules. Waiving that rule would have to be made at a general assembly of shareholders.

Portugal Telecom said its board would meet Tuesday to review the offer.

The Portuguese government owns 500 so-called golden shares in Portugal Telecom that give it the right to decide on strategic issues.

Telefonica, France Telecom lurking

Deutsche Bank analysts said France Telecom may pick up some assets in a deal. Optimus would likely be a prime target as France Telecom
FTE, +1.13%
(013330) is a 23.7% shareholder in Sonae.com.

"There are monstrous regulatory issues, and a forced sale of Sonae.com's existing assets could be one of the results (in theory France Telecom could acquire these assets if the price were attractive)," Deutsche Bank analysts wrote in a research report.

Politically, the offer is strengthened by the fact that it was made by a Portuguese group, the analysts added.

"A counterbid from operators such as Telefonica may well be attractive to investors and is simpler from a regulatory angle, but raises far greater political issues," the broker said.

There have been concerns in the past that Spain's Telefonica
TEF, -0.64%
which owns 9.9% of Portugal Telecom, could make a bid for Portugal Telecom.

A spokeswoman for Telefonica declined to comment.

J.P. Morgan analysts agreed that the Sonae bid could be politically motivated. "We would be surprised if Sonae had not approached the government and or the regulator prior to such a move," they said.

Can Sonae pull if off?

Millennium BCP Investimento said that including debt and unfunded pension liabilities, the total enterprise value to be tendered by Sonae should reach 16.8 billion euros.

"We believe that this offer still has a long way to go," Millenium wrote in a report.

The firm added it believes the offer is viable for Sonae, assuming it goes on to sell some of the assets such as the Vivo stake.

Analysts said Optimus could be sold to France Telecom and that PTM, the cable network or the wireline division could also be jettisoned.

"We expect Portugal Telecom's stakes in Vivo, Medi Telecom, etc. to be sold, with TEM a possible buyer, as it is already a part-owner," Bear Stearns said in a research report. "We believe Sonae's Portuguese operations Sonaecom/Novis/Optimus may be interesting to France Telecom, given its existing holding in Sonaecom."

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